Opportunity Zone Update – IRS Releases Second Set of Proposed Regulations

On April 17, 2019, the Internal Revenue Service released the second set of Qualified Opportunity Zone (“QOZ”) proposed regulations (the “New Regulations”). The New Regulations address multiple issues relating to the structuring and operation of qualified opportunity zone funds (“QOFs”) and provide clarity on areas that include:

  • Meeting the original use test for purchased tangible property
  • Safe harbors for leased tangible property to qualify as QOZ business property
  • Related party rules for leased tangible property and tangible personal property
  • Investment vs. active business use of QOZ land
  • Safe harbors to meet the 50% gross income test for the active conduct of a QOZ business
  • Inclusion events for otherwise deferred capital gains
  • Definitions for the term “substantially all” used in several statutory provisions
  • Special elections when QOF partnerships and S corporations dispose of property after 10 years
  • QOF reinvestment of the proceeds from the distribution, sale, or disposition of QOZ property
  • Application of the 90% asset test to newly contributed QOF assets

The New Regulations provide answers to many unresolved questions and present needed definitions where uncertainties were impeding investment into QOZs, particularly with respect to QOZ businesses. Our new article discusses many of the details.

Peter J. Ulrich, a Director in the Gibbons Corporate Department, and Todd M. Kellert, an Associate in the Gibbons Corporate Department, authored this post.
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